The financial choices young professionals make in their first five years can put them on a completely different trajectory from their peers.
A friend of mine’s son recently got his first “real” job in an engineering firm out of college, and the “kid” (he’s actually an adult at 22) came to me and asked for my advice on what it was going to take for him to get ahead.
I don’t know what his exact starting salary is but I would guess knowing him, his grades, and the job market overall, it has to be somewhere between $75K-$80K. Thankfully, he isn’t starting out with any college debt due to going to a state school and having both scholarships and help from his parents.
The advice I gave him is far from profound and the same advice I give everyone:
- Don’t be in a rush to get married and have kids. It’s expensive and you will change a lot between now and the time you are 28-30 years old. No urgency needed there.
- Don’t go buy a new car and finance it. Only drive what you can afford to pay cash for. If that’s a $4K Nissan, so be it. If you have enough cash (say $25K), go buy the best used 911 Porsche you can find that hasn’t been ruined with aftermarket modifications. It will be worth more three years from now than you paid for it and your employers will automatically assume you are a classy guy with high expectations for himself.
- Rent a place with two or three of your friends. You lived like that in college and can keep doing it now. Keep your monthly rent down as low as you can.
- Put 10%-20% of your net pay into an investment account. Don’t be overly conservative. Buy funds with good track records.
- Don’t buy your coffee at a coffee shop every morning. Make it at home where it’s cheap or drink the company’s coffee where you work.
- Eat at home. Simple meals that don’t cost a lot. Eat breakfast at home and bring lunch to work or skip it entirely unless the boss or someone else is buying.
- Don’t go on expensive vacations to Aruba or Europe or wherever just because your friends are doing it. Stay back and work.
- If you want to make extra income, consider some sort of side business selling stuff that is drop shipped on the internet, or working doing construction or landscaping, or fixing bikes or something else on the weekends if you have time.
Do all these things for five to six years and guess what – you will be so far ahead of most of your peers they will never catch up with you. There’s no magic in it. And when you go to buy your first house, buy the worst single-family house in the best neighborhood close to downtown that you can afford. Get something that needs work and do it yourself in the evenings and weekends. Single family houses close to everything are the most recession-proof.
Everyone wants to talk about how young people cannot afford to live these days but if you compare how they are living to their WW2 vet grandparents or great grandparents, it’s not hard to see why they cannot afford anything. They are not hustling enough because of the fictional idea of “work/life balance” way too early in their careers, and throwing their money away in ways the “greatest generation” and even “baby boomers” never would have considered.
I won’t get into all the other advice I had about work for him other than to be the fastest to respond to calls, texts and emails, to not “check out” and instead be engaged with work at nights and on weekends, to say “yes” to anything he gets asked to do, and to stay calm no matter how abusive or hostile a client or boss may be.
I’m glad to say the kid was receptive to my “old man” input. He seemed to listen to what I said. Now we shall see if he actually does it. I wish I had done all of these things myself. Many people – even some of my own kids – think I must have known something about managing money when I was younger. The truth is while I did some of these things, I could have been a lot smarter. I was never good at saving. I was good at earning. I always figured that if I had enough things going and enough possibilities something good would happen to bail me out and it always did.
But it didn’t have to be like that. Good habits early on may be all it takes to put you on a different trajectory from one’s peers who will mostly all be lamenting their financial situations and complaining about housing affordability and more by the time they are 35 or 40.
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Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com. |
